The perfect tax? Proposed pied-a-terre tax

The pied-a-terre tax proposed for New York City would raise hundreds of millions of dollars, presumably from rich foreigners who buy multimillion-dollar, part-time apartments in the city. Overseas residents don't vote, so politicians like it—and voters may like it because rich New Yorkers hate getting out bid by rich foreigners.

In short, if any new tax on the wealthy in New York has a chance of passing, it's this one.

But a close reading of the proposed tax reveals that it's not so simple. Some New York residents, it appears, could also fall under the new tax.

James. S. Russell | Bloomberg | Getty Images

A penthouse apartment in New York.

The proposal, first floated by the left-leaning Fiscal Policy Institute and being crafted into legislation by State Sen. Brad Hoylman, would tax the 1,556 non-primary residences in New York City worth more than $5 million.

It would start with a 0.5 percent surcharge on the amount over $5 million and rise gradually to 4 percent for home values above $25 million. It's expected to raise about $665 million a year, according to the Institute. (Even though the tax is on New York City residents, it has to be passed by the state).

Such taxes have become common around the world as governments seek to cash in on the rush of rich foreigners buying real estate. Voters are also frustrated by wealthy buyers from overseas bidding up local property values.

The U.K. is proposing a new "mansion tax" on properties valued at £2 million or more. And Singapore and Hong Kong have recently passed measures adding special taxes and fees on foreign buyers. But all three markets have slowed recently.

New York's real estate market weathered the housing crisis much better than other areas of the U.S., and the proposed tax would only hit the very top of the market, which has been on fire.

Real estate lobbyists and luxury developers in New York City are already opposing the possible New York tax, fearing it could reverse this trend.

"The last thing we want to do is lower the value of real estate, which would then lower the taxes for the City of New York," Steven Spinola, president of the Real Estate Board of New York, told the website Capital.